One of your clients owns a trading company which is about to make an investment into a joint venture. They have asked for your advice as to whether this could jeopardise business property relief. Is there an issue and, if so, what could you suggest?


Your client runs a modest advertising company from an office in their home. The company is owned by a holding company, Holdco Ltd. Your client owns all the shares in Holdco.

The advertising company’s turnover is £100,000 per annum with net profit from this of £65,000. There are minimal tangible assets on the balance sheet although there is likely to be a non-negligible amount of uncapitalised goodwill in the business. Overall the company is likely to be worth somewhere in the region of £350,000.

Joint venture

An opportunity has arisen for your client to invest in an established business of a similar nature, investing on a 50:50, i.e. a joint venture (JV), basis with an old school friend. The initial investment will be £400,000 and your client is minded to use Holdco to acquire the shares. Holdco’s 50% share of the joint venture’s turnover and profit is expected to be £200,000 and £100,000 respectively.

You and the client had an in-depth meeting when the parent-subsidiary structure was set up, and so they are already reasonably familiar with the business property relief (BPR) rules. They assume that, as the JV will be a trading entity, eligibility for BPR will be unaffected, i.e. their Holdco shares should qualify. But is this the case?

Business property relief

Any shares held in an unquoted company will be relevant business property under s.105(1)(bb) Inheritance Tax Act (IHTA) 1984 , and relief from IHT will be given at 100% providing the shares have been held for two years.

Pro advice. The way the legislation is written means that all unquoted companies start from the assumption of BPR being available, with relief only being withdrawn if at least one of the disqualifying conditions is met.

One such condition is that shares in a company will not be relevant business property if the business carried on by that company consists, wholly or mainly, of making or holding investments. This is discussed in HMRC’s guidance at IHTM26261+ (see Follow up ).

Pro advice. In a group situation it is key to understand that it is the business of the company shares held directly by your client that need to be assessed, i.e. the holding company.

On the face of it, a company which does not carry on any trade of its own and only holds shares in other companies, would be considered an investment company and so denied BPR. However, there is an important exception at s.105(4)(b) for shares in a company if the business of that company consists, wholly or mainly, of being a holding company of one or more trading subsidiaries. It is therefore important to understand precisely what the definition of holding company and subsidiary are for these purposes.


The IHT definitions are contained in s.1159 Companies Act 2006 , which says a company is a holding company of its subsidiary where it:

holds a majority of votes in the subsidiary; or
is a member of the subsidiary and has the right to appoint and remove the majority of the board of directors; or
is a member of it and controls the majority of the voting rights in it.
For a company to be a true subsidiary of another company, the holding company must own more than 50% of the voting shares in it.

Pro advice. The special get out for holding companies qualifying for BPR where it carries on no trade of its own, will only apply if it holds shares in true trading subsidiaries.

Under the current structure, therefore, your client’s shares in the holding company would qualify for BPR as it owns 100% of the advertising subsidiary. But how would the investment in the JV impact on this?

Business of a holding company

Where a holding company has more than one activity, for example where it holds shares in more than one company or where it undertakes trading and/or investment activities in addition to holding shares, it will be necessary to consider what the predominating activity is. This is in order to determine what the main “business” of the holding company is, and, providing it is not one of wholly or mainly making or holding investments, BPR will apply subject to the other conditions being met.

HMRC treats 50:50 joint ventures as minority interests per IHTM25261 (see Follow up ). Effectively they are investment activities for BPR purposes even though the JV itself may be trading. Holdco will therefore hold shares in a trading subsidiary, i.e. in the advertising company and in a minority investment (the JV), and for BPR to apply to the Holdco shares the dominating activity would need to be the holding of shares in the trading subsidiary, and not in the JV.

Unfortunately for your client the 50% interest in the JV would be a much larger enterprise than the 100% interest in the advertising subsidiary, as the asset value, turnover and profit are expected to be greater. BPR will therefore not apply to the Holdco shares if the JV investment is made using the proposed structure.

Pro advice. Because the holding company would not qualify for BPR, the entire value of the whole group will be denied BPR, including the existing trading subsidiary. This is a trap you can avoid with some forward planning.

Minority interest

Instead of acquiring the 50% interest entirely through the holding company, BPR could be achieved on the whole investment if it was split personally with your client.

Example. Your client acquires 25% of the shares in the JV for half of the original amount, i.e. £200,000, with the Holdco acquiring the other 25% for £200,000. The investment in the JV by the holding company would be worth £200,000, compared to the investment in the advertising company of £350,000.

By only making a 25% investment through Holdco, the value of assets (£200,000), turnover (£100,000) and profit (£50,000) would be lower than your client’s existing advertising subsidiary and therefore the main business of Holdco would be that of holding shares in the advertising subsidiary.

Pro advice 1. The remaining 25% held direct by your client could also qualify for BPR under the normal rules and is not dependent on the value of the shareholding held.

Pro advice 2. Any direct shareholding would need to be held for two years by your client before it qualified for BPR, although any investment by Holdco would qualify immediately.

Investment companies

Let’s suppose your client decides to use the cash to form a new subsidiary under Holdco to invest in a rental property portfolio. As you are probably aware, BPR for the group would be restricted to the value of the advertising subsidiary by the provision in s.111 IHTA 1984 .

If Holdco were to only hold a 50% interest in the property company, with say your client personally holding the remaining 50%, the s.111 restriction would not be triggered as this only applies to true subsidiaries.

Holdco would therefore qualify for BPR and the entire value of the group would be protected. Your client’s direct interest in the property company couldn’t qualify for BPR, but this is still a better result than using Holdco to acquire 100% of it, as at least half of the value would now be outside the IHT net.

A 50:50 joint venture is treated as an investment, and so BPR could be lost if its value is greater than the existing trading subsidiary, even though the venture is trading. Advise the client to make enough of the investment personally to ensure the value of the existing subsidiary dominates to avoid a loss of relief.

Follow up


HMRC guidance – IHTM26261+